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UNCLAS SECTION 01 OF 04 GUANGZHOU 013385
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EB, R, EAP/CM, EAP/PD
STATE PASS USTR - STRATFORD, CELICO
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE
USPACOM FOR FPA
E.O. 12958: N/A
TAGS: ECONETRDEINVCH
SUBJECT: The Long March: From Fossils to Feathers: Heyuan's
Bid to Take Flight
(U) This document is sensitive but unclassified. Please
Protect accordingly. Not for release outside U.S.
Government channels. Not for internet publication.
¶1. (SBU) Summary: As part of the Long March, a series of
road journeys through the Guangzhou consular district
(septel), we traveled to Heyuan, an impoverished prefecture
largely untouched by the recent rapid development in South
China. Heyuan is bidding to draw further investment away
from more developed regional competitors by leveraging its
relatively unspoiled environment and abundant resources to
offer a new, cleaner, more sustainable model for industrial
development. End Summary.
Reading the Fossil Record as a Symbol of the Future
--------------------------------------------- ------
¶2. (U) Heyuan, in South China's Guangdong Province, boasts
the world's largest collection of dinosaur eggs. In a low,
dusty building off a side road, double-sided racks stacked
eight high and running the length of a long room contain
more than ten thousand specimens unearthed nearby. A
display case in one corner holds the museum's prize
exhibit: a fossil the curator claims is the long-sought
missing link that proves the dinosaurs of yesteryear took
flight and became the birds of today.
¶3. (U) Perhaps. Certainly it is a compelling story, one
city fathers hope to mimic as they usher their largely
undeveloped prefecture into a bright future. Their vision
is as clear as the pristine lake upon whose shores the town
rests: entice clean, light industry and skilled labor to a
strategically situated region blessed with clear air, cheap
and abundant power, and almost unlimited water - a precious
resource in modern China. They even have a slogan: "More
money, less hassle, better health."
Some Damming Problems Prevent Full Economic Development
--------------------------------------------- ----------
¶4. (SBU) The path to achieving that vision is less clear.
The lake that supplies the water and the dam that supplies
the power are both controlled at the provincial level;
while Heyuan's leaders are tasked with protecting these
resources, they have no say in their sale, and receive
little of the proceeds. Industrial infrastructure remains
in many respects rudimentary, and until now the region has
experienced a brain drain as talented, educated inhabitants
move away in search of economic opportunity.
Rising from the Mud - Heyuan's Humble Beginnings
--------------------------------------------- ---
¶5. (SBU) Heyuan - a prefecture whose own vice mayor, Wu
Youbi, describes as "backward" and "hilly" - clearly has
some way to go to achieve prosperity. Formed in 1988 from
northwestern Guangdong's five poorest counties, it is a net
importer of rice and pork even though 76 percent of the
population live in rural areas. The wealth of urban
dwellers is four times that of the countryside, whereas
nationwide that ratio is 3 to 1. Some 20% of Heyuan's
population have been forced to go elsewhere to find work.
¶6. (U) Despite relative poverty and lack of development,
Heyuan does have some things going for it. It is
strategically located a short distance from two of the
mostly highly developed and economically active cities in
China: Shenzhen, on the border with Hong Kong, and
Guangzhou. Despite that proximity, Heyuan's own lack of
development has left it with plenty of room for expansion
and abundant natural resources, including what the city's
vice mayor calls "the last drop of clean water in Guangdong
province."
¶7. (U) Heyuan's Evergreen Lake (Wan Lu Hu), formed in 1958
when the East River (Dong Jiang) was dammed just below its
source, covers 350 square kilometers, is up to 118 meters
deep, and provides the largest portion of Hong Kong's
drinking water. When we visited the lake, it was clearly
showing some strain from the past three years of drought.
GUANGZHOU 00013385 002 OF 004
The lake also supplies Shenzhen, Dongguan, Zhuhai and many
other fast-developing Pearl River Delta (PRD) cities.
Local leaders claim the water is clean enough to drink
untreated.
¶8. (U) In the heady early days of China's rush to
development, the charge of protecting the lake was seen as
an unwelcome burden that often tied local leaders' hands
and stymied their efforts to keep up with the pace of
development around them. Now, as neighbors like Shenzhen
and Guangzhou struggle to provide enough clean water and
reliable power for their burgeoning populations and
industries, it has come to be seen as an asset that can
help lure light industry away from those areas with the
promise of more sustainable, ecologically viable
development.
Spreading Their Wings - Light Industry Takes the Lead
--------------------------------------------- --------
¶9. (U) Heyuan's leaders laid out the details of the 11th
five-year plan in a series of meetings. Not surprisingly,
the focus was on economic growth and industrial
development, driven by a new High Tech Development Zone
(HTDZ). Project Director Li Yannan explained the rationale
and planning for the Zone, which is nearing completion of
the first phase of construction. According to Li, Heyuan
must sustain 15% growth over the next five years to meet
its targets. While part of this will come from developing
mining, agriculture and tourism, the primary driver will be
industrialization, stimulated and guided by the creation of
the High Tech Development Zone.
¶10. (U) Planning for the HTDZ - which might more aptly be
termed a "Light Industry Zone" - began in 2002. The
Chinese national government invested RMB 500 million (about
USD 6.25 million), attracting additional investors from the
mainland, Hong Kong, Taiwan, Korea, Japan, Europe and the
United States. Organizers claim a total of 93 companies
have entered into contracts to invest USD 750 million. Of
these, 58 currently have facilities under construction in
the zone; 38 are due to be operational by the end of this
year, the rest in early 2007. Hong Kong-based Long Kee, a
maker of machine molds that employs some 10,000 people, is
currently the zone's largest operation. Makers of
electronics, toys, carpets and stationary are also present.
¶11. (U) Roads, power, water and other infrastructure are
nearing completion in a 6.5 sq km area of the Zone.
Ultimately, the HTDZ is meant to cover some 40 sq km, with
an 18.3 sq km "center." The developers envision a mixed
urban area of industry, housing, shopping and community
services that will eventually support some 300,000 workers
and contribute RMB two billion (USD 250 million) per year
to the economy.
Staying Green: Protecting the Water Supply Comes First
--------------------------------------------- ---------
¶12. (U) The Zone is meant to address not only the benefits
but also the unique environmental concerns raised by the
proximity of Evergreen Lake. Companies are held
responsible for primary waste water treatment, but the HTDZ
also boasts China's most advanced secondary waste water
treatment facilities. The provincial Environmental
Protection Bureau (EPB) has established a 24-hour a day
water monitoring station on site, and the zone will be
required to maintain downstream water quality standards.
Certain high-polluting industries, such as electroplating,
chemical coatings, cement, ceramics and wood processing,
will be banned entirely.
¶13. (U) The zone's developers believe it has a number of
highly attractive benefits to offer industries wishing to
expand in South China. First is the location, on the Hong
Kong/Beijing rail line and with highway links to major
regional population centers. Second is the support
infrastructure, said to comprise waste processing, an
extensive road network, power supplies and government
services. Third is a stable power supply; power from the
GUANGZHOU 00013385 003 OF 004
dam keeps Heyuan from exceeding national and provincial
power grid quotas, as happens often in nearby Dongguan and
other developing cities. Fourth is a commitment to serving
business on the part of the local government; new companies
can register in less than a week, with a local
administrator assigned to each and graded on the service he
provides. Lastly, developers point to a series of factors
they say result in significantly reduced production costs:
land is cheaper than in more developed areas, with the
maximum price for land in Heyuan set at just 1/8th of the
minimum price in Shenzhen; water is cheap and plentiful
thanks to the lake; license fees are kept low; and labor
costs are also low. The Zone's developers say these
factors together represent a 20-25% reduction in production
costs relative to nearby prefectures.
¶14. (U) Finding qualified workers to staff these new, more
technology-driven facilities is an issue. Some 70% of
workers in the HTDZ come from outside Heyuan. While
efforts are underway to develop a homegrown work force -
the local technical institute recently received
reclassification as a university, and provincial job fairs
are being extended to the municipal level - that trend is
likely to continue. The Zone's developers have formed
cooperative agreements with outside educational
institutions; in February, they claim to have successfully
recruited more than 23,000 workers.
Into the Clear Blue Sky - Environment as Economic Driver
--------------------------------------------- -----------
¶15. (U) Throughout meetings with Congenoffs, Heyuan's
leaders were quick to point to their prefecture's
relatively unspoiled environment and resources as a major
selling point, one that sets Heyuan apart and makes it more
attractive to light industry. Their desire to protect the
quality of the local water and air arises from both a
provincial requirement to do so and a recognition that
these resources, properly managed, can serve as an economic
driver.
¶16. (U) Heyuan EPB Deputy Director Lai Zhi Gang reminds
visitors that the prefecture contains within its borders
87% of the East River basin, and almost half the river's
total length. His bureau allows only minimal tourist
activity on Evergreen Lake, the river's headwater, and has
banned all development along its shores. Visitors stay in
hotels in town, and all waste generated at the lake is
shipped out of the area. EPB officials have implemented
educational programs to raise local awareness of
environmental issues.
¶17. (U) Beyond that, Lai points to a three-part strategy
intended to create a "win/win" situation in which
industrial development and environmental protection go
hand-in-hand. Step one is to clean up existing sources of
pollution: some RMB 200 million (USD 25 million)has been
spent to clean up more than 60 sites, including a small
pharmaceuticals manufacturing complex and a cement plant;
30 high-polluting businesses have been shut down entirely;
and a new wastewater treatment plant is being built. Step
two involves regulating new industries. The HDTZ is
designed to attract low-pollution, new-technology
industries and lessen their environmental impact by
gathering them together in a single, well-maintained area.
All new industries are required to obtain an environmental
impact report assuring their run-off water achieves the
highest level (level 1) on China's industrial emissions
scale; the standard throughout the rest of Guangdong
province is level 2. The final step is effective
enforcement of environmental regulations. Heyuan
authorities have shut down all restaurants and hotels
upstream of the lake and set up 24-hour a day water quality
monitoring. Since the city was founded in 1988, they claim
to have refused more than RMB 20 billion (USD 2.5 billion)
in investments deemed incompatible with environmental
protection.
No Farmer Left Behind:
Heyuan's Vision of the New Socialist Countryside
GUANGZHOU 00013385 004.2 OF 004
--------------------------------------------- ---
¶18. (U) While the primary focus of Heyuan's 11th Five-year
Plan is on developing light industry, the majority of the
prefecture's inhabitants will continue to live a rural
existence for the foreseeable future. According to Li
Yunhan, Deputy Director of the Heyuan Agriculture Bureau,
the prefecture has designated 120 sites as pilot villages
for developing the New Socialist Countryside called for by
Chinese President Hu Jintao.
¶19. (U) Li says income in rural areas rose slightly more
than in urban areas - 37% to 35% - over the last five
years, though from a much lower base. The Heyuan
Agricultural Bureau has identified four strategies for
developing the countryside. The first is to shift farmers'
emphasis from growing crops to raising livestock. The
second is to shift cultivation from subsistence crops to
cash crops; the ratio is currently .82 to 1, while the goal
is a ratio of 1 to 1. The third is a campaign to spur
agricultural development. The fourth strategy is
optimization of the economic structure of villages. This
will be achieved by raising incomes, building homes,
developing infrastructure, focusing on product quality and
safety standards, protecting villages from natural
disasters, and promoting commoditization of rural products
by encouraging "dragonheads." Dragonheads are leading
enterprises, large, cooperative organizations that help
market and distribute farmers' products. Heyuan farmers
currently participate in a total of 103 dragonheads: six
are organized at the provincial level, 23 at the prefecture
level, and the rest are municipal.
¶20. (U) The ultimate goal is to improve farmer's living
conditions, particularly in the areas of housing; drinking
water quality and safety; domestic infrastructure, moving
from wood ovens to gas; and waste removal, with projects to
recycle both animal and human waste into methane that can
be used to cook food and light and heat homes. Health care
is being addressed in the form of a rural insurance program
funded 10% from participant fees, 40% from central
government contributions, and 40% from municipal government
contributions. Participants will be reimbursed up to RMB
5,000 (USD 624) for medical costs. Prefecture leaders also
claim to be investing some RMB 400 million (USD 50 million)
in hospitals, renovating 41 clinics, and providing each
village with a RMB 10,000 (USD 1,250) subsidy for a local
medical unit.
¶21. (SBU) All of this takes place against the backdrop of a
push to further urbanize Heyuan's population. The goal for
the next five years is to move from the current 24.3% of
population in urban areas to 38%. While it is not clear
exactly how this is meant to be achieved, it appears any
change may come more through reclassification than actual
physical movement of populations.
Comment: Limited by Its Role as Water Source
--------------------------------------------
¶22. (SBU) Heyuan's leaders have both a clear plan for
developing their prefecture, and a project - the HTDZ - in
place to do so. In fact, theirs is still a largely rural
prefecture, and will likely continue to be for some time.
With little revenue generated from sales of power and water
from the local lake and dam, funding will be an issue,
giving greater influence to those bringing in investment,
and less to those promoting sustainability and
environmental protection. Providing the education and
support necessary to help rural dwellers become industrial
workers will also be important. The vision is in place,
and it's a good one, but time, wise governance and adequate
funding will all be required to make it a reality.
DONG